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The Death of Foreign Aid

This article originally appeared in the Korea Herald on
October 21, 1999.

On the day that President Bill Clinton vetoed the $12.6 billion
foreign aid bill for being too stingy, the body of former Tanzanian
dictator Julius Nyerere was returned to his nation’s capital of Dar
es Salaam for burial. Nyerere’s death should signal the death of
foreign assistance as well.

Nyerere was representative of the “big men” who emerged in
Africa through decolonization. A nationalist who led his country to
independence from Britain in 1961, he was a vocal exponent of
“African socialism.” Though he collectivized the economy,
instituted one-party rule, and barred a free press, Nyerere was
nevertheless feted by Western intellectuals and showered with
Western aid.

He expanded state control to most economic activities,
nationalized all the industries that mattered, and instituted the
forced collectivization “ujamaa” program.

By 1985, when Nyerere retired, economists James Gwartney and
Robert Lawson figure Tanzania was the seventh least economically
free country.

Along the way, the West showered billions of dollars on Tanzania
$6.4 billion through 1985 alone. The United States alone
contributed $352.5 million through 1985. The World Bank,
demonstrating that it lacked both a conscience and common sense,
directly underwrote his brutal ujamaa scheme.

The result of such hubris that a powerful elite should forcibly
organize the lives of millions of people was, not surprisingly, a
disaster. Peasants resisted being uprooted from their ancestral
homes and refused to produce food at confiscatory prices for
Nyerere’s bureaucrats. Nationalization created one money-losing
black hole after another.

Between 1965 and 1986, the economy actually shrunk 0.3 percent a
year.

His manifold failures forced his successors to change course.
Tanzania rose from No. 103 on Gwartney’s and Lawson’s economic
freedom list in 1990, when Nyerere relinquished his remaining power
by retiring as chairman of the ruling party, to No. 70 in 1995.

Unfortunately, however, Tanzania still suffers from Nyerere’s
pernicious policies. By the mid-1990s, the World Bank ranked
Tanzania as the third poorest country on the globe. Between 1980
and 1992, its economy grew not at all. It will be years before
Tanzania’s people recover from his mistakes and from the Western
“aid” that allowed Nyerere to turn his philosophical fantasies into
Tanzania’s economic practices.

Alas, Tanzania is not alone. As of 1996, 70 poor countries were
worse off than in 1980; 43 were poorer than they had been in 1970.
All had received generous doses of so-called assistance.

The pervasive corruption now evident in Russia and Bosnia is
problem enough. Much aid simply disappears, as has much of the $5.1
billion so far given to Bosnia, and more than $20 billion provided
by the International Monetary Fund to Russia.

In fact, the flood of Western cash has actually stoked the fires
of corruption.

Even more pernicious, though, is foreign aid’s role in
subsidizing economically destructive policies. Most Third World
governments have mismanaged their economies by trying to manage
them.

At times, donors have advanced bad policies. The IMF, for
instance, is responsible for tax increases and currency
devaluations throughout the Third World. For decades, the World
Bank unquestioningly backed state-run development programs.

In 1983, senior bank staffer Stanley Please wrote that “as a
committed socialist … I was surprised and shocked by the emphasis
which the bank at the time gave to the public sector in general,
and to the government, in particular.” The institution “had more
confidence in the rationality, morality and competence of
governments than I ever had.”

Even when Western governments and multilateral institutions
formally deplored recipient policies, they continued to effectively
subsidize the very policies being criticized. Donors regularly
provided cash to nations irrespective of their actions. In such
cases, money spoke far louder than words.

Consider the IMF, which has a fearsome reputation for imposing
“conditionality.” The Fund has subsidized the world’s economic
basket cases, like Egypt, India, and Sudan, for decades, without
result. Moscow continues to collect new loans no matter how much is
wasted or stolen.

In short, the constant flow of foreign funds, however targeted
or conditioned, has given governments sufficient resources to allow
them to implement policies that wreck their economies. True, many
collectivist regimes throughout the developing world, including
Tanzania, have finally had to face reality. But Western assistance
unnecessarily prolonged the adjustment process, essentially
treating Third World debtors like drunks who were handed a wad of
cash and told to drink no more.

Foreign aid should be called foreign hindrance. Instead of
trying to overturn Clinton’s veto, Congress should pass a new
appropriations bill zeroing out failed assistance programs. It’s
time to bury foreign aid along with Julius Nyerere.